Big businesses have made no progress in ensuring the prompt payment of their suppliers over the last five years, new research shows.
Businesses are currently waiting an average of 41 days to be paid, the same length of time as in 2015. This suggests that legislative initiatives to tackle this issue, such as the UK’s Prompt Payment Code supported by the Small Business Commissioner; and the EU Late Payment Directive, are simply not working. Alternatively, to the extent these initiatives are working the benefit is wiped-out by other late-payers’ behaviour getting worse.
The research by accountants and business advisors, Moore also shows that over 15% of the 113,000 UK businesses covered by the study are having to wait 90 days or longer to be paid.
Every year hundreds of businesses become insolvent because of late payments by their customers.
The late payment of suppliers is likely to get worse over the next few months. Some large businesses are already using talk of economic slowdown as an excuse to delay payments even longer and force tougher trading terms on their small suppliers.
The Prompt Payment Code was established to improve SMEs’ financial stability by helping them to recover late payments owed to them more quickly. The Code requires signatories to pay 95% of suppliers within 60 days; to aim towards 30 days, and to encourage good payment practices across supply chains. Many large businesses such as BAE, Diageo, GlaxoSmithKline, Shell and Unilever, have recently been removed from the code by the Commissioner for failing to meet these guidelines.
Duncan Swift, Partner at Moore, says: “The data suggests the Prompt Payment Code is not being kept to and stricter enforcement measures are needed to ensure businesses pay all of their suppliers on time. The current ‘name and shame’ tactic is not enough of a stick.”
Businesses in the food supply chain, for example, have been suffering from late payments by large supermarkets for decades.
Since 2013 the Groceries Code Adjudicator has repeatedly called on the UK’s leading supermarkets, that account for over 80% of the market, to change this. However, only 5 of 13 supermarkets are Prompt Payment Code signatories and much of their SME late payment behaviour is masked by their fuel supplies, with oil companies typically being paid within 5 days of delivery. At any given time, the Top 4 supermarkets alone currently have debts due to suppliers over 30 days old of c.£4bn.
Other sectors that have often struggled with late payments include the construction sector, a problem that has contributed to the sector’s remarkably high rate of insolvency.
Moore says if businesses don’t receive payments on time, they might be forced to write off those invoices as bad debt which many cannot afford to do. Slow payment also restricts cashflow and means businesses may not be able to pay their own bills.
Duncan Swift adds: “SMEs are under extreme financial pressure, with many concerned that they simply do not have enough cash to meet upcoming costs, such as rent and payroll.”
“This pressure is particularly acute in sectors where lockdown restrictions have had an outsized impact, such as construction and manufacturing.”
“Ensuring the timely payment of invoices could play an important role alongside the Government’s new coronavirus lending schemes in ensuring SMEs have the cash they need to survive this trading period.”
